Downturn in Europe's energy markets sharpest since 2008 crisis

* Power, gas and coal prices down sharply

* Overcapacity weighs along with sluggish demand

* Improving economy not likely to give big boost

By Henning Gloystein

LONDON, June 6 Europe's power, gas and coal
markets are in their sharpest downturn since the financial
crisis of 2008 and traders say subdued demand and increasing
capacity hurt chances of a big rebound any time soon.

The power and coal futures markets are down by around 40
percent since peaking after Japan's Fukushima nuclear meltdown
in March 2011 pushed up global energy prices.

Prospects for economic recovery and the closure of
unprofitable capacity offer some hope, but analysts say
overcapacity continues to weigh on Europe's power market along
with weak demand.

"European economic growth should continue to recover in
2014, but the recovery will be uneven and overall electricity
consumption growth - if any - looks to be modest," analysts at
French Bank Societe Generale said in a research note.

COAL

Coal prices have fallen as new supply comes to market from
exporters such as Australia, Indonesia, South Africa and
Colombia, while demand growth has generally slowed in
industrialised and emerging markets.

"Excess supply from producing countries exacerbated by
weakened Asian demand have continued to affect current
international coal trade price behaviour," Societe Generale
said, although it expected prices to pick up next year helped by
Chinese and Indian demand.

India's coal demand growth has slowed over the past year as
utilities slashed new orders due to weaker industry output and a
fall in the rupee currency which made dollar-traded imports more
expensive.

RENEWABLES GROWTH

Another important factor for power, gas and coal price
trends is growing renewable energy supply which is being spurred
subsidies aimed at making Europe's electricity sector cleaner.

"As renewable energy penetration has got to a more advanced
level in the past couple of years, this is having a systematic
downward impact on electricity prices, not just daily
fluctuations," said Jacopo Moccia of the European Wind Energy
Association (EWEA).

Some 23 gigawatts (GW) of wind power capacity was installed
across the European Union in 2012/2013, according to the EWEA,
which is equivalent to adding more than 20 standard European
fossil fuel or nuclear power stations.

Solar power capacity is also expanding, as is coal, with at
least half a dozen new coal-fired power stations set to connect
to the grid in the next two years.

GAS IS DIFFERENT

Gas prices are also falling, though they held on for longer,
buoyed by unrest in gas-rich North Africa and the Middle East
Asian demand for liquefied natural gas (LNG) and, more recently,
fears over a Russian supply cut to Ukraine, an important transit
route for European Union imports.

This year the gas futures market has shed almost 15 percent
of its value.

A mild winter and spring have helped dent heating demand.

"This price slump is more than a seasonal decline as winter
turns to spring. It reflects a North West European gas market
that is substantially oversupplied," said consultancy Timera
Energy.

"Not only are we back to pre-2000 levels of demand, but we
now see no chance of the 500 billion cubic metres (bcm) level
being attained even in the case of an extremely cold winter,"
Societe Generale analysts said.

EU efforts to lower dependence on fossil fuels, especially
imported ones, could lower European consumption further towards
2020, they added.

Europe's annual gas demand stands at around 480 bcm, down
from a peak of almost 525 bcm in the early 2000s.

Adding to this weakness in the gas market is unusually high
supply from Qatar, the world's biggest LNG exporter, which
generally ships to Asia.

As in Europe, Asian LNG prices have dropped sharply this
year.

"It is not in the Qataris' strategic interest to drive a
slump in spot prices in their primary market. So surplus LNG is
typically sold into Europe," said Timera Energy.
(Additional reporting by Ben Garside; editing by Jason Neely)

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